The Insurance Act 2015 comes into effect today, meaning that any insurance or reinsurance contract entered into or varied from today will be governed by the Act. The effects of the Act are far reaching: changing insurance legislation that has been in place for over a century, and impacting on any transaction governed by the laws of England, Wales, Scotland and Northern Ireland, with a potential to affect organisations across the world.

1. The Insurance Act 2015
The new client duty of disclosure
Aon Risk Solutions
Risk. Reinsurance. Human Resources.

2. The Insurance Act 2015 (“the Act”)
The Act comes into effect on 12 August 2016, replacing law that has been
in place since 1906. It overhauls the existing law, and aims to rebalance the
position between the buyers of insurance and Insurers. Whilst it puts an
Insured in a better position than currently, it does impose a new duty on
them, the ‘duty of fair presentation’. This new duty will require you (the
Insured) to change how information is provided to Insurers, and is explicit
regarding who needs to be consulted when gathering such information.
The Act applies to policies that incept or renew on or after 12 August 2016, (although the
new duty is likely to also apply to variations made to existing policies on or after this date).
This document gives an overview of the most significant changes, with practical
guidance on how to prepare for the new rules. For further information,
including more detailed guidance, please contact your usual Aon adviser.
Key points to consider are:
• Data gathering and renewal preparations may take you longer
• You may need to devise new processes for data collection and
submission, which are likely to involve more people
• Senior managers will need to be involved and need to be aware
that they may not have cover if they do not get involved
• You may need to consult other parties outside your organisation,
e.g. consultants, agents, suppliers or those performing outsourced
functions, to collect any material information that they may hold
• Keep a full audit trail and record all information that is disclosed to Insurers and
the process you took in order to meet your reasonable search requirement.
This publication is intended for
the general guidance of UK-based
clients only. While this publication
uses sources that are believed to be
reliable, it is provided with no warranty
or representation as to its accuracy,
adequacy, completeness or fitness for
any purpose and with no acceptance
of liability for any loss whatsoever
incurred by any person who may
rely on it, regardless of the cause of
the loss. Recipients shall be entirely
responsible for the use to which they
put this publication. This publication
has been compiled using information
available to us up to April 2016.
The Act
comes into
effect on
12 August
2016

3. The new “duty of fair presentation” What happens if you fail to meet the
new duty of fair presentation?
The duty of disclosure is now a “duty of fair presentation”. This requires a slightly different approach
to renewal. Importantly, a “reasonable search” must be undertaken, with senior managers and the
(internal and external) insurance team involved in the information sweep.
Current law The Insurance Act 2015 What does this mean in practice?
Disclosure General duty
to disclose all
material facts.
Duty of fair presentation.
• What needs to
be disclosed?
A circumstance that
the policyholder
knows or ought
to know in usual
business practice,
which would have
an effect on the
mind of the prudent
Insurer when
assessing the risk.
Full disclosure of every material circumstance
that you know or ought to know.
Or, you mut provide sufficient information
to a prudent Insurer, so they are aware
of the need to make further enquires
to reveal material circumstances.
(You must always aim to disclose all
material circumstances).
The type of information that needs
to be disclosed is not changing.
It includes specific or unusual facts
relating to the risk to be insured and
any particular concerns that led you to
seek insurance cover for the risk.
• Whose
knowledge
is relevant?
No explicit
requirement.
Material circumstances known by:
• Your organisation’s ‘senior management’
• Anyone involved in the process of
procuring your insurance on your
behalf (both employees and agents).
And
Material circumstances that would be revealed
by a reasonable search of information:
• Known by others within your organisation
• Held by others.
Senior management includes those
individuals who play a significant role in the
decision making about how your activities
are to be managed or organised. It includes
the highest level of management e.g. the
board, but will vary depending on your
organisation’s structure and management
arrangements. There is no “one size fits all”.
Those “involved in the process of procuring
your insurance” is intended to include all
those who participate in the insurance
buying process, collate information about
the risk, and negotiate with Insurers,
whether as your employee or as an agent.
The reasonable search will vary based on the
size and type of organisation. It is intended
to include information held by persons or
entities who are covered by the insurance plus
others who may hold information e.g. outside
advisers and consultants, suppliers/service
providers, and outsourced service partners.
It will be important to maintain a clear
audit trail.
• How disclosure
is made?
No explicit
requirement.
Must be presented in a clear, accessible
and structured manner to the Insurer
• It must not be too brief or cryptic. No ‘data-
dumping’ is allowed i.e. the provision of
large amounts of undigested information.
Submit all information to Aon in clear
and organised documents.
Under current law Insurers have only one remedy where the duty to disclose material information is
not met, namely, full avoidance of the insurance policy. This is changing so that the consequences
will vary depending on the reasons for failing to meet the duty of fair presentation, and depending
on what the Insurer would have done differently had the duty been met at the outset.
N.B. The following describes the default legal position. Your policy may not reflect this position, so it
is important to check your own policy. If in doubt, please speak with your usual Aon adviser.
Current law The Insurance Act 2015 What does this mean in practice?
Any deliberate or
reckless failure
The Insurer can
avoid the policy.
The Insurer can:
• Avoid the contract
• Refuse claims
• Keep the premium.
A deliberate breach is where the Insured
knew they were in breach of the duty, whilst
a reckless breach of duty is defined as not
caring whether or not the duty is fulfilled.’
It is for the Insurer to show that a breach
is deliberate or reckless.
Not deliberate or
reckless failure but
• the Insurer
would not
have provided
insurance on
any terms
The Insurer can
avoid the policy.
The Insurer can:
• Avoid the contract
• Refuse claims.
In these circumstances, the Insurer
must return the premium.
Your policy may be invalidated.
Not deliberate or
reckless failure but
• the Insurer
would have
applied different
terms (e.g.
exclusions and
conditions but
not premium)
The Insurer can
avoid the policy.
The Insurer can continue with the
insurance but will apply those terms
that they would have wanted from
the date they would have applied.
The policy terms may be worse than
initially agreed and the policy may
not respond as you expected.
This remedy can apply in addition to
the Insurer proportionately reducing a
claim payment (described below).
Not deliberate or
reckless failure but
• the Insurer
would have
charged a
higher premium
The Insurer can
avoid the policy.
The Insurer can reduce proportionately
the amount to be paid on a claim.
The Insurer can reduce a claim
payment significantly.
If, for example, the premium charged
is 75% of what the Insurer would have
charged, the claim payment will be
adjusted to 75% of the total claim.
This remedy can apply in addition
to applying different terms.

4. Other important changes
The Act changes the law on warranties and loss mitigation terms. It also abolishes
Basis of Contract clauses. These changes improve the position for Insureds.
N.B. The following describes the default legal position. Your policy may not
reflect this position, so it is important to check your own policy. If in doubt,
please speak with your usual Aon adviser.
Current law The Insurance Act 2015 What does this mean in practice?
Warranties Non-compliance
automatically
terminates the policy.
Warranties become “suspensive conditions”. Cover is suspended only whilst the
policyholder is in breach of the warranty.
Non-compliance of
a ‘loss mitigation’
policy term that
has no bearing
on the claim
Any breach whether
or not relevant
to the loss can
affect the way the
policy responds.
This depends on
the type of policy
term breached,
but could, in the
most severe case,
terminate the policy.
For ‘loss mitigation’ terms (this includes
warranties as well as conditions precedent
and other policy terms), Insurers cannot
limit or avoid a claim where the insured
can show that the breach could not
have increased the risk of loss.
‘Loss mitigation’ terms are those that
relate specifically to a particular type of
loss or a loss at a particular location or
time. But this does not include terms
that define the risk as a whole.
Basis of contract
(BoC)
BoC clauses are
allowed and the
Insurer can avoid
the policy for any
misstatement within
the information
provided to them.
BoC clauses are prohibited. All information provided to Insurers (including
answers to questions on a proposal form) can
no longer be treated as a warranty, whereby
any incorrect information automatically
terminates the policy.
The Insurance Act 2015
Unquestionably, the new duty of fair presentation places
an increased burden on policyholders to ensure details of
all material circumstances known to them is disclosed, and
to carry out a potentially wide-ranging search for further
information. The following suggestions are intended to assist
in preparing for this duty. Note that this is not intended to
be an exhaustive list and are given no order of importance.
Disclosure: Practical considersations
The Act
comes into
effect on
12 August
2016

5. Actual knowledge
Knowledge of the policyholder’s senior management and
those involved in the insurance procurement process.
• Have available a clear and up-to-date structure
chart for each commercial insured
• Take early action to identify and document
‘senior management’ and ‘those involved
in the insurance procurement process’
• This ought to be by office or role, rather than individual
name, and may include those in subsidiary companies,
joint ventures and the like, and those based overseas
• Consider what action is required to ensure the listings
are maintained to reflect appointments and departures
• Decide what process will be adopted to collect
information from senior management / insurance
personnel, with due consideration to global
presence and any inherent reporting issues
• Raise awareness now to ensure senior management
and insurance personnel know what is expected
of them and that they are aware of the importance
to meet the new duty of fair presentation and
the potential consequences of not doing so.
General
• Document and map the existing disclosure strategy
and consider how this will need to be modified
• The process of data collection, validation and
submission is likely to take longer. Consider whether
the renewal timetables need to be adjusted to allow for
timely collection, collation, validation and disclosure
of information. Likewise, ensure the renewal timetable
includes adequate time to respond to Insurers’
questions, and allows for timely placement of cover
• Identify which policies will be in scope, i.e. any
insurance or reinsurance policy governed by the laws
of England, Wales, Scotland and Northern Ireland.
This may include policies written abroad but subject
to UK law, or insurance for foreign entities where
cover is placed in the UK and subject to UK law
• Remember that a proposal form does not negate the
new duty to make fair presentation. A proposal form
focuses on the typical, basic, material circumstances
relevant to the type of insurance sought. Be aware
that proposals will often require declaration of
details of any other material circumstances which
is known or ought to be known by the proposer
• Consider how details of new or changing material
circumstances will be maintained during the year.
Most policies have an explicit ongoing disclosure
requirement. It is important that material circumstances
evolving or emerging during the policy period are
disclosed to Insurers in a timely way, e.g. information
relating to acquisitions, process or product change
• You should prepare to spend longer discussing
the details of your organisation with your broker,
and where possible, your Insurer. Ensure they are
aware of all activities and material circumstances
• It may be possible to obtain guidance from Insurers
as to what they consider is material to the relevant
risk, although this is in itself unlikely to limit the
need to disclose additional information
• Consider how information will be documented
and stored. Keep a complete and permanent copy
of the presentation made to Insurers. It may be
necessary, in the future, to make a historic search
of the data collected and presented. An audit
trail will be vital to evidence that you have met
your duty to make a fair presentation of risk
• It will no longer be permissible to submit lengthy
technical documents to support material disclosure.
Consideration should be given to how details of
material circumstances may be extracted from
any such documents and disclosed to Insurers
• Do not point Insurers to your website without direction.
Where particular information is provided on web-pages,
consider how to accurately keep a record of its content
for future reference. This may be required at a later date
to evidence what information was provided to Insurers
• Take care not to include immaterial information.
Use caution when using CD’s and data rooms to
present information as this is a frequent issue.
Ensure CD’s and data rooms are logical, indexed,
organised and clear
• In partnership with your broking team,
decide how information will be conveyed
and how it will be presented to Insurers
• Likewise, consider an appropriate method for
capturing and responding to Insurer questions
in a timely and fully auditable manner.
The Act
comes into
effect on
12 August
2016

6. The Act
comes into
effect on
12 August
2016
Knowledge that ‘ought
to be known’
What should reasonably have been revealed by a
reasonable search of information available to the
policyholder, held by persons in the policyholder’s
organisation and by any other person.
• Review policy wordings to identify the scope
of insured parties and additional beneficiaries.
For example, co-insureds, subsidiaries, additional
insured’s, beneficiaries etc. or, contractors and
sub-contractors included under a contractors all
risks (CAR) policy or current and former directors
under a directors and officers (D&O) liability policy
• Identify the types of operating areas or specialist
functions that may be an in-house source of material
circumstances, e.g. development teams, asset managers,
site managers, finance, accounting, treasury, legal and
human resources. Remember to include areas that may
be less significant from an organisational perspective,
but pose a higher risk in terms of activity, process and
the like
• Consider how details of material circumstances will
be captured from those identified areas. For example,
it may be desirable to send detailed questionnaires.
Of course, due consideration will need to be given
to ensure the requirements are understood including
an explanation of material circumstances and the
potential consequences of failing to meet the duty
• Consider what other parties, outside your
organisation, may hold details of material
circumstances e.g. outsourced functions, suppliers,
partners, financiers etc. Take steps to ensure all such
parties can in fact be identified and contacted
• Agree who is responsible for searching and storing
details of material circumstances held within the
insurance broking organisation that needs to
be disclosed as part of the reasonable search.
Consider how such knowledge will be transferred
should you change your appointed broker
The new law has been written
deliberately vaguely to allow for
flexible interpretation and to suit the
many different types of policyholders
and insurances to which it will apply.
As an unfortunate consequence, this
makes provision of a definitive guide
impossible. The suggestions included
here are intended as a helpful guide,
to assist you as you begin to prepare
for your new duty. If you have any
queries about the new duty of fair
presentation or the wider provisions of
the Act, please do not hesitate to get
in contact with your usual Aon adviser.

7. About Aon
Aon plc (NYSE:AON) is a leading global provider
of risk management, insurance brokerage and
reinsurance brokerage, and human resources
solutions and outsourcing services. Through its
more than 72,000 colleagues worldwide, Aon unites
to empower results for clients in over 120 countries
via innovative risk and people solutions. For further
information on our capabilities and to learn how we
empower results for clients, please visit:
http://aon.mediaroom.com/
© Aon UK Ltd 2016. All rights reserved.
Aon UK Limited Registered Office
The Aon Centre, The Leadenhall Building,
122 Leadenhall Street, London, EC3V 4AN
The information contained herein and the statements expressed are of
a general nature and are not intended to address the circumstances of
any particular individual or entity. Although we endeavor to provide
accurate and timely information and use sources we consider reliable,
there can be no guarantee that such information is accurate as of
the date it is received or that it will continue to be accurate in the
future. No one should act on such information without appropriate
professional advice after a thorough examination of the
particular situation.
Aon UK Limited is authorised and regulated by the
Financial Conduct Authority.
aon.co.uk
Risk. Reinsurance. Human Resources.